David has no particular interest to investing all his wealth(500million) in risky assets and risk-free assets. The expected return on the risky asset is 12 % a year, with a standard deviation of 20% per year. The interest rate for risk-free loans is 6% per year. The risk-free borrowing rate is 8%.

1. What does it mean by David has no particular interest to investing all his wealth(500million) in risky assets and risk-free assets.
2. calculate David's risk aversion coefficient.
3. According to your answer to (a), what is the optimal mix of risky and risk-free assets for David?
4. Mr. Joe is a friend of David and runs an investment fund. He offers David 7% a year of risk-free investment opportunities, provided he can invest at least $5 million.

Assume that investment opportunities are really risk-free. David realized that in order to take advantage of this opportunity, he must invest all his wealth in Mr. Joe. Should he invest all her wealth in Mr. Joe and earn a risk-free rate of 7% instead of holding the best combination you calculated in the section (c) above?

Use calculations to support your answer.